By Matthew Rousu
In Pennsylvania, we have a "prevailing wage" law. While a reasonable definition for a prevailing wage would be "whatever wage we can pay in which someone will accept the work," that's not what the law indicates. Prevailing wage laws indicate that government entities must pay above-market wages for any job that costs more than $25,000. Legislators are considering changing the law to minimize its impact. That is a great idea that should receive bipartisan support.
Both Democrats and Republicans should want to eliminate the prevailing wage law, although for different reasons. While Democrats often want an expansion of government services and Republicans often want a smaller government, both parties should want our government to be efficient. When the government becomes more efficient, it can provide more services with the same amount of taxpayer money, provide the same amount of services with less taxpayer money, or potentially even provide more services with less money. A repeal of the prevailing wage law would be a great step to increase the government's efficiency.
Right now, with the prevailing wage in place, our government's efficiency is limited. Local governments often undertake projects where they have to pay increased costs because of prevailing wage laws. According to the Commonwealth Foundation and their straightforward arithmetic, the prevailing wage law results in $2 billion in additional costs annually for Pennsylvania taxpayers. To put this in perspective, the total budget for the state of Pennsylvania is about $28 billion (i.e. the inefficiency is equal to 7 percent of the state budget). At $2 billion, given the state's population, the prevailing wage law results costs every man, woman and child in the state more than $150 each year.
These costs have had serious consequences for everyone. For example, many local school districts, including the one I live in, have had to reduce the numbers of teachers they employ. Given the inflated costs these districts have had to pay for any construction projects they've undertaken in the past fifty years, it is fair to say that the prevailing wage has caused some of the teacher layoffs we've seen in this state. This isn't the only example. Another example of the consequences of the prevailing wage is some county commissioners across the state have said they've had to defer standard maintenance on buildings because the prevailing wage made it cost prohibitive.
By eliminating the prevailing wage, our government will be more efficient. Repealing the prevailing wage will allow local governments to provide more services, require lower tax rates from citizens, or both. With this repeal, there will be a debate over what to do with the cost savings. The left may wish to expand government programs, which could be done at no additional cost. The right may wish to decrease the tax burden. And in fact, we may see different decisions from local governments and school boards across the state that benefit from this law change.
This is a debate we should relish having -- what to do with cost savings from our more-efficient government. There will be controversy and differences of opinion on that. But repealing the prevailing wage shouldn't be controversial. We need our lawmakers to make our government more efficient by repealing the prevailing wage.
n Matthew Rousu is an associate professor of economics at Susquehanna University. He blogs at PAeconomist.blogspot.com.